Sera Prognostics, Inc. Q4 FY2021 Earnings Call

Good afternoon and welcome to the Sera Prognostics' Conference Call to Review the Fourth Quarter and Fiscal Year of 2021 Results. At this time, all participants are in a listen-only mode. We will be facilitating a question-and-answer session towards the end of today's call. As a reminder, this call is being recorded for replay purposes. I would now like to turn the call over to Peter DeNardo of CapComm Partners for a few introductory comments. Please go ahead, sir.

Thank you, Chuck. Good afternoon everyone. Welcome to Sera Prognostics' fourth quarter and full year 2021 earnings conference call. At the close of the market today, Sera Prognostics released its financial results for the quarter ended December 31, 2021. Presenting for the company today will be Greg Critchfield, Chairman, President, and CEO; and Jay Moyes, our CFO. During the call, we will review the financial results we released today, after which we will host a question-and-answer session. If you have not had a chance to review our quarterly earnings release, it can be found on our website at seraprognostics.com. This call can be heard live via webcast at seraprognostics.com, and a recording will be archived in the Investors section of our website. Please note that some of the information presented today may contain projections or other forward-looking statements about events and circumstances that have not yet occurred, including plans or projections for our business, future financial results, and market trends and opportunities. These statements are based on management's current expectations and actual events or results may differ materially and adversely from these expectations for a variety of reasons. We refer you to the documents the company files from time to time with the Securities and Exchange Commission, specifically the company's annual report on Form 10-K, its quarterly reports on Form 10-Q, and its current reports on Form 8-K. These documents identify important risk factors that could cause the actual results to differ materially from those contained in our projections or forward-looking statements. I will now turn the call over to Greg, Sera Prognostics' chairman, president, and CEO. Greg?

Thank you, Peter. Good afternoon, everyone. Today I will provide an overview of key business highlights during the quarter and our expected developments over the near-term. We are pleased that Sera completed 2021 with a number of significant accomplishments that we believe will help pave the way for substantial success in the future. These include continuing to build our commercial infrastructure, signing important third-party agreements, payer agreements, and publishing key studies that strongly support Sera's tests and treat PreTRM strategy. We believe that all these activities will help us improve the health outcomes for moms and babies and thereby achieve significant healthcare cost savings for society. Commercially, at this point in time, we are in very early market development. As a market builder, we are doing something no one else has done before, bringing the first commercially available blood test to market to determine an expectant mother's individual risk of spontaneous PreTRM birth. Taking a broadly and rigorously validated test to market that has the potential to enhance the paradigm of pregnancy treatment is not a simple endeavor. It involves creating awareness through education of doctors, patients, and payers of the significant health and cost-saving benefits of using our test. This process takes time and requires the careful coordination of each element of the strategy that must be put in place to build effectively build the market. COVID-19 complicated this process during the first seven months of our launch, with unforeseen pandemic spikes having a profound and continued negative impact on normal healthcare delivery, physician engagement, and enrollment in clinical studies. Thankfully, we appear now to be emerging from that situation. Today, I'll focus my commentary by providing you insights with insights into major areas we are addressing in the execution of our plans. Our strategy and execution with payers including an update on Anthem, our continuing efforts to generate important health and economic data, including a timeline for enrollment of our PRIME study with Anthem and clinical and economic data readouts. Our work to address healthcare disparities, the efficient use of capital resources to build infrastructure and capabilities, continuing the design of the sales operations, including key sales learnings that we are leveraging to empower our team for success, as we call opposition practices, and a brief review of the progress on our product pipeline, as we leverage our advanced proteomics and bioinformatics platform. First word of payer strategy. Payers require data in order to make informed decisions on coverage. As we consistently articulate, our strategy is to publish peer-reviewed articles that demonstrate the clinical and economic benefits that occur as a result of applying PreTRM testing. In November of 2020, we launched the PRIME study within the Anthem network. To generate further data, this should enable Anthem and others to optimize how PreTRM testing is rolled out in their networks. From July 2021 until the present, four clinical and health economic studies have been published in respected journals. One of these was the rigorous health economic analysis performed by Health Corps and Anthem of the PreTRM strategy, which was published in September 2021. Based on Anthem's own data as a consequence of strong political and economic data, we successfully entered a multi-year long-term commercialization agreement with Anthem in the first half of 2021. The commercialization agreement enables Anthem to access Sera's testing services and for Sera to be paid for such testing. It also specifies that Anthem will pay annual minimums for testing during the term of the agreement. We received the first minimum payment this past January. We believe this payment is one of the many elements indicative of Anthem's continued support. Payer revenues, including from Anthem and others, have been slow to develop due in part to COVID-19 as well as some payer personnel turnover further, while it takes it further while takes time to materialize. We have seen some payers shift their strategic focus towards disadvantaged populations, in a way we believe will broaden the business opportunity for our testing. We will address our view on short term expectations later in the call. A key positive is that Center for Medicare and Medicaid Services, CMS recently set a Medicare payment rate of $750 for Sera's unique CPT proprietary laboratory analysis PLA code for the PreTRM test. We see this assigned rate as a further validation of the commercial value of PreTRM tests, which puts us in an excellent position for reimbursement discussions and decisions with all payers; commercial, self-insured employers, integrated health networks, and governmental Medicaid and Medicare plans. While we continue to work closely with Anthem, we've also entered into contracts with a number of self-insured employers and have recently announced a contract with MultiPlan, a national large insurance network payment system with more than 700 healthcare payers and 1.2 million healthcare providers participating in its network. We see these and other executed contracts as a positive indicator for future reimbursement. We are in active discussions with a number of payers and we will announce future key opportunities contributing to the revenue growth in the future. We see that these kinds of payers, as well as nearer term revenue opportunities that will contribute to growth over the next few years ahead of more widespread payer adoption. I'd like to give you a bit of the timetable on clinical and economic outcomes. The PRIME study, a prospective randomized control trial launched within the Anthem network is designed to provide a template for Anthem and others optimize how to effectively roll out serious PreTRM test and treat strategy across their networks. I'm pleased to report the PRIME study enrollment is accelerating as we emerge from the COVID-19 impacts we saw last year and early this year. We have now enrolled nearly 1,000 pregnancies across 14 sites around the country. The co-primary endpoints are hospital length of stay reduction and improvement of neonatal health. We believe that the PRIME study is on track to have 2,800 interim look enrolled pregnancies in the fall of this year and for the readout of the trial to take place during 2023. We believe that publication of positive PRIME study results will be an accelerant for growth in 2024. In the meantime, we expect additional clinical and economic data to be made public during the first half of 2022 and continuing thereafter. We will announce the data from these efforts as soon as we are able to do so. We believe that positive results from these studies will continue to provide momentum for continued test order and revenue growth ahead of the PRIME study readouts. A word now on health disparities. Sera is committed to addressing the significant disparities in maternal and newborn health that exist in underserved populations, particularly among black women. This has become an important key focus for Sera with its contracted partners. You may recall a recent appointment of Dr. Woodrow Myers as an advisor to Sera focusing on public and political affairs. We continue to work with him and other key individuals and organizations on a multidisciplinary strategy to address health equity and disparities. We believe the PreTRM test has great potential to make a meaningful contribution to more proactive management of the large numbers of higher risk pregnancies that result in poor outcomes in these underserved populations. We're pleased to see an increasing number of third-parties joining with Sera and focusing on these huge unmet medical and societal needs to work together toward greater health equity. Discussions are underway, with state, national, and regional insurance to address these challenges. We look forward to beginning specific initiatives, not only among currently contracted payer parties working with Sera to do so, but also how we involve additional payers in helping us to make a real difference. We believe that adoption of serious cost-effective and cost savings approach will generate significant societal benefits and will also be a source of future revenue. This points to a long-term robust opportunity to help doctors and patients improve the outcomes of pregnancy while Sera grows over time. Over time, we've used these initiatives that I just described as key elements in our deliberate, persistent, and multifaceted strategy to build the foundation for a much accelerated uptake as payers and physicians more widely adopt Sera's technology and we capture a large percentage of the enormous PreTRM testing market. Use of capital resources to build infrastructure and capabilities is important. Notably, there are approximately 3 million pregnancies annually for the PreTRM tests in the U.S. And we're building a solid platform that is designed to enable us to make a strong impact as more data become available, more widespread insurance coverage occurs, and physician acceptance accelerates at the provider and/or professional society levels. To effectively impact those millions of pregnancies, there are a number of operational imperatives that must occur, so that and we're utilizing our significant capital resources to accomplish the following activities; build out electronic ordering and infrastructure, negotiate new blood draw partnerships and/or developing new blood collection techniques, streamline the customer experience for patients, physician offices as well as our billing processes. Complete important clinical studies to reinforce and support strong sales messaging and advance PreTRM as a standard-of-care. Establish contracts with strategic early adopter commercial payers, healthcare, and physician networks, self-insured employers and governmental third-party payers and improve our lab processes that will increase efficiency and capacity while lowering costs. We've had a lot of learnings from deploying our sales reps. In 2021, we hired over two dozen sales territory managers. During 2022, we will continue to aggressively pursue early market development driven by these territory managers that we believe will produce steady near-term revenue growth as we refine our approaches and learn while we create a new paradigm for pregnancy management. Again, we are marketing the only commercially available prognostic blood tests to determine the risk of spontaneous PreTRM birth. As such, we embarked on this important journey with key learnings from the salesforce hired and deployed beginning in Q3 through Q4 of 2021. This has informed our approach and allowed us to optimize our go-to-market strategy for success. We've adjusted our sales messaging based on our experience, while also improving the training, coaching, and performance measures of our existing sales team. These changes have already led to gradually increasing month-over-month and quarter-over-quarter improvement in Q1 2022 physician visits, practices converted to ordering, order volumes, and test results delivered and we are encouraged by what we are seeing. We're using tools to identify and target innovative and early adopter physician practices. We are expanding consumer engagement that we believe will drive interest at the patient level. We plan to expand our salesforce selectively in response to increased demand and payer coverage. The final word about product pipeline advancements. Beyond commercializing PreTRM, we're also pleased with our progress in advancing our product pipeline by leveraging our advanced bioinformatics and proteomics platform to create better predictive information for pregnant women. We recently presented our work on preeclampsia in the late-breaking poster session at an international scientific meeting. We are planning on validating a preeclampsia predictor by the end of this year with the completion of the development of the commercial predictor taking place during 2023 and launch thereafter. We continue to believe that our vision to be the pregnancy company will be realized by developing valuable information for mothers, doctors, and payers across a number of important pregnancy conditions. As new products are launched, we believe that these efforts will create additional revenue streams for Sera.

Thanks Greg and good afternoon, everyone. Today I'll briefly review our financial results for the fourth quarter and then provide commentary on our outlook for the near and mid-term. For the fourth quarter of 2021, we reported revenue of $26,000 compared to $6,000 for the same period of 2020. Total operating expenses of $12.6 million were up significantly from $4.8 million for the fourth quarter of 2020. The increase was primarily due to the scale up of operations to market and commercialize our PreTRM test. Research and development expenses for the fourth quarter of 2021 were $3.1 million compared to $2.1 million for the prior period, primarily due to increased laboratory operations and clinical study costs. Selling, general, and administrative expenses for the fourth quarter of 2021 were $9.5 million, up from $2.7 million, due primarily to increased headcount and the company's scale commercial operations and general corporate infrastructure, as well as increased costs related to operating as a public company following our IPO in July 2021. Net loss for the fourth quarter of 2021 was $12.5 million compared to $5.4 million for the same quarter a year ago. As of December 31, 2021, the company had cash, cash equivalents, and available for sale securities of approximately $140 million. I would like to stress that in the current difficult environment for corporate financing, we are comfortable that we have sufficient capital resources to implement our strategy into 2025 without the need to raise additional capital. Turning now to our expectations. Although we have not previously given guidance and don't intend to do so for the time being, given that we're in the early phases of commercialization, we do want to keep you informed as to the commercial ramp and the timing we see going forward. The macro challenges we face, including wave after wave of pandemic causing patients to defer doctor appointments, have impacted the revenue trajectory in the short-term. Our belief is that revenues in 2022 will be less than $500,000. We do not plan on giving additional guidance beyond that for the foreseeable future, but as Greg mentioned, all the revenue growth has been slow, and progress on a number of key fronts has been strong, and we believe we have the capital resources to execute on our strategy.

Thanks Jay. We'd like to thank everyone for attending our call today. We expressed on our last call that these are early days for Sera in commercializing the PreTRM test. Though early commercialization always presents challenges, we are pleased to see increased trends of adoption as we execute our strategy. Our strength lies in our first-mover advantage in a market with no significant discernible competition. Ample cash on the balance sheet, a deep roster of experienced professionals, and a compelling health economic story underpinned by rigorous data. In a very difficult market landscape, we believe we are uniquely positioned to achieve our mission to better human life as the pregnancy company. And with that, we'll open the line for questions. I'll turn it back over to the operator.

Thank you. We will now begin the question-and-answer session. The first question will come from Patrick Donnelly with Citi. Please go ahead.

Hey, guys, thanks for taking the questions. Maybe one on PRIME, just trying to figure out can you talk about how much you view this as a catalyst for payers coming on board? You're obviously having ongoing conversations with payers today, what's the willingness to reimburse before seeing this data versus kind of waiting? Just wondering what those recent conversations suggested in terms of needing to see the economic sensitivity data for PRIME before coming online versus the willingness to step in front of it and start paying for this?

Thank you, Patrick. We see PRIME as a valuable addition to the extensive health, economic, and clinical evidence that has already been presented. Our aim is to enhance the implementation of PreTRM testing. There is no doubt that several payers recognize its value and have already entered into contracts with us. We are also actively engaging in discussions with many others. Therefore, we believe PRIME contributes positively to that body of evidence.

Okay, that's helpful. Can you provide more information on the guidance Jay mentioned regarding being under $500,000? What changes have occurred since our previous conversations a couple of quarters ago concerning the expectations for 2022, specifically regarding the impact of COVID on volumes and reimbursement? We need your insights to understand the differences in these expectations.

Yes, as I mentioned earlier, there were two significant waves of COVID in early 2021 that we did not foresee. This impacted access to physician offices and altered obstetrics practices, resulting in various challenges due to the pandemic. Additionally, we have noticed a strong emphasis from payers on addressing healthcare disparities. There were also changes in personnel among certain insurers, and companies adjusted their strategies regarding where to best implement technologies. We are optimistic about the opportunities to better tackle disparities faced by underserved populations. Furthermore, I want to highlight that our sales team was primarily hired in the latter half of 2021, with many joining in the last quarter. It takes time for sales representatives to ramp up and become productive, and through our data monitoring, we are well-positioned to see the benefits of adjustments we have made as we engage with the market moving forward.

Okay. And Greg, maybe picking up on your last point there, I mean, on the salesforce has the trajectory of the revenue shift changed your plans in terms of salesforce hiring? How you're thinking about 2022 in terms of hiring, even 2023? Given again, the revenue being a bit lower? How are you thinking about kind of building out the salesforce and the infrastructure there?

The way we think about it is at the end of 2021, our sales headcount was approximately 30. What we're going to do as a company is monitor the adoption, monitor payment by insurance companies, and we will judiciously adjust our salesforce, depending on market conditions. That's what we plan on doing. By the way this model works. We did the same thing in the early days at Myriad, but that led to the tremendous success that we have there. It is possible to roll out a salesforce in an effective manner by paying attention and developing best practices and replicating them across the body of sales representatives. That's clearly the strategy as we move forward.

Understood, thanks. I'll leave it there. Appreciate it, guys.

The next question will come from Brian Weinstein with Blair. Please go ahead.

Hi, this is Dustin on for Brian. First question, we're wondering about the contract minimums. I know you just mentioned that you got your first minimums recently, but we're wondering just how those should roll throughout 2022? And maybe the scale those in addition to how they compared to original expectations at the time of the IPO?

Jay, you want to answer that one?

Yes, sure. We haven't really spoken in detail about the contract minimum. And we really don't intend to do so. But we have received the minimums that we are entitled to and expect to receive the minimums going forward. So, I think everything in accordance with the contracts are moving as expected.

Got it. And I know you get some color on the recent trends you're seeing with the test, but we're wondering what you're hearing from your salesforce? What are clinicians saying about the tests? Are they positive on it? And are there any reservations that they have that are maybe slowing down the pace of adoption right now?

Yes, what the Salesforce is hearing from physicians includes the following. Certainly, doctors are confirming that there's an unmet need. They're reaffirming there's a significant clinical gap in how to manage the challenge of PreTRM birth. They acknowledge that a solution like PreTRM is actually something that's really needed. The questions that we get from them are, what percentage of patients come back at increased risk? What do I do when a patient comes back with an elevated risk? What is the clinical protocol used? What do maternal fetal medicine experts think about the test? And are the professional societies aware of serious technology? There are excellent answers for all those things, I can tick them off. I won't do so now. But those are the kinds of things that we enter into discussions. Clearly, there's an interest among OBGYNs as we were able to sit down and explain things to them. They're very interested. They want to know how would I actually use this in my practice.

Yes, and Greg, I might add that we do carefully monitor productivity and put key initiatives in place to address what could potentially be roadblocks. We manage productivity through coaching, education, accountability, simplification and messaging, streamlining the time of contact with the patient near to the time the blood is drawn. And simplifying the process to bring practices on board are all improvements from which we're seeing higher productivity. So I just wanted to add that.

Okay, thank you. And then one more for us. You recently showed data on the first pipeline product for preeclampsia. Just wondering how this data came in relative to expectations? What this means for clinical adoption? And can you give us an update on the other pipeline products that are in development? Thank you.

Sure. Yes. We're very excited about the preeclampsia data that was presented at the Society for Reproductive Investigation. We are in the process of conducting a complete validation of the preeclampsia prediction. With that, we see a complement to the kind of information we're adding. It goes back to what our strategy is: develop clinically meaningful and economically impactful predictions that can make a positive difference in the lives of mothers and babies. Clearly, our preeclampsia work is part of that PreTRM strategy, and there are additional products that will come later. We were at various stages of development. But we were very excited to validate the preeclampsia product and ultimately make it available to the market after it's validated sometime after 2023 is when one would expect to see something there.

Hey, thanks for taking our questions. Greg, you mentioned you've made some adjustments to sales messaging and also that one of your goals for early commercialization is to kind of settle on best practices that can then be rolled out across the larger salesforce. What are some of those changes of messaging that you picked up? And if you're looking to implement, how should we think about some of the incremental learning and impact on best practices?

We have worked to reduce the time between when a patient first learns about the test and when the blood is drawn, making it easier for patients to see their doctor and to keep the test in mind during their visit. We have focused on clarifying who the test is for, as it's easy to misunderstand its purpose and the eligible patients. In reality, most singleton pregnancies are suitable for the test. When asked about our clinical practices with high-risk patients, we simply point to existing protocols that doctors use daily. We remind them that they can follow familiar protocols to address patient risk. All these simplifications in our materials, presentations, and sales strategies, along with reducing the time needed to convey our message, are part of best practices. We believe these changes are contributing to the increased uptake we are seeing as we move into 2022.

Great and as a follow-up, I think you highlighted driving patient interest or patient awareness in PreTRM is kind of one component of the strategy, how should we think about relatively capital efficient ways to just sort of, you know, generally motivate the pregnant mother who's coming in to engage the clinician and a potential conversation?

There are a number of tools that can be used. We are ramping up our voice in social media networks, making this information available to more women. We have planned campaigns, both on the physician side and the patient side, to go out and raise awareness. There are ways to do that very effectively. We will have more to say, as we enter into broader coverage. We also look geographically at where the physicians and patients are likely to be most receptive. We have a good deal of experience doing this in the Myriad days, where we started out in selected geographies, made sure that it worked before we moved to others; that's the kind of strategy that we use as we roll out our digital campaigns to raise awareness. Clearly, there are really three major customers that we have to hit there. First of all, we have to make sure that the payers are aware and can pay for the testing. The physicians need to be made aware in order to order the test and the patients are the ones that are going to benefit the most. Having all three of them requires coordination and our activities are coordinated to make sure that we can address all three of those key customers that are involved in our testing.

Great. Thanks for taking our questions.

Our next question will come from Dan Brennan with Cowen and Company. Please go ahead.

Hi, this is someone filling in for Dan. I have a question about the readout for PRIME. Do you have any clear metrics in mind for your co-primary milestones, and what do they look like?

Yes, the main objectives of the PRIME study are to reduce the length of hospital stays and improve neonatal health, assessed through standard measures of infants' health at birth. As shown in the Prevent PTB study, we demonstrated a greater than 70% reduction in the time PreTRM infants spent in the NICU or hospital. Therefore, hospital length of stay is a crucial factor we consider. Each day a baby remains in the hospital incurs costs, creating a significant financial burden on the healthcare system; less developed infants tend to have the longest stays. Directly measuring neonatal health indicates that successfully reducing NICU time while ensuring healthier discharges is the outcome we aim for. These outcomes are particularly important for payers. We designed the PRIME study with payers in mind and worked closely with our colleagues at Anthem to develop the metrics for the trial. We are eager to continue expanding the existing data, demonstrating that early and proactive intervention during pregnancy can positively influence health outcomes and economic factors.

Got it. Great. And then just to kind of follow-up on the strategy from here for PreTRM. So, you had mentioned a bit of a pivot towards looking at underserved populations, I was wanting to give some more color on what that looks like and how you've kind of divvying up your salesforce along those lines? Thanks.

Yes. It is well-established that African-American women have PreTRM birth rates that are significantly higher than those in non-African-American populations. There are areas in the US where underserved populations are particularly affected by PreTRM delivery. As a company, we have targeted these regions. We have established trial sites for the PRIME study in some of the most affected areas for prematurity in the U.S. We are engaging with stakeholders at federal and state levels, as well as with payers, to create programs aimed at distributing the PreTRM test as part of a comprehensive package for these patients. These discussions are ongoing, and there is considerable interest and political attention surrounding this issue. From a healthcare standpoint, it is crucial that we address these disparities more effectively. We are having very positive conversations that we believe will lead to significant partnerships, ultimately generating revenue as we deliver value through our PreTRM tests to society.

Thanks. I have a quick follow-up question. You mentioned earlier that there might be interim PRIME data available by Q4 this year. Is that still a possibility? If not, when should we expect it in 2023? Thank you.

Unfortunately, the COVID pandemic slowed down the development of getting the readout completed this year. We believe we will have the requisite number of enrolled patients in the PRIME study, 2,800. So that the readout can occur in 2023. And we're looking at having the readout of the PRIME study taking place in 2023. As I said before, we're at nearly 1,000 patients enrolled already and we're on track to complete enrollment to get to the point where we can perform the interim look, and ultimately the final look.

Great. Thanks. I'll hop back in the queue.

This concludes our question-and-answer session. I would like to turn the conference back over to Mr. Peter DeNardo for any closing remarks. Please go ahead, sir. End of Q&A

Thank you, Chuck. This concludes the call. We look forward to providing an update on our business when we report first quarter 2022 financial results. Thank you and good afternoon everyone.

The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.